Move against NSEL defaulters logical

It is welcome that the focus in the Rs 5,600-crore scam at the National Spot Exchange Ltd (NSEL) is firmly on the defaulters, including brokers. While the government has focused penal attention on the promoters of the exchange, Financial Technologies India Ltd, declared it unfit to run any stock or commodity exchange, traders who claimed to have stocks they actually did not have and, thus, created the default — when a certain contract being traded on the exchange was deemed illegal and wound up — have been largely off the radar. However, the Economic Offences Wing of Mumbai Police has frozen assets worth Rs 6,000 crore belonging to defaulters, and the process of selling these off to recover the defaulted amounts is on.

Now, the police have issued lookout circulars against 96 individuals, including 41 brokers, according to a ToI report last week. On January 4, ET reported that Sebi has issued supplementary show-cause notices to five brokerages, in addition to the notices issued to 295 brokers on NSEL. The supplementary notices followed a report by the Serious Fraud Investigation Office, which has raised charges of mis-selling, client code modification and laundering of black money by the brokers. While the exchange and its promoter must be held to account for the badla-like trading that was carried out in a regulatory vacuum, it is beyond comprehension why the effort to recover the default amount was concentrated on the exchange and its promoter, instead of focusing on the brokers and traders who created false positions with commodities they did not have.

The ongoing recovery of default amounts and unravelling of the mechanics of the fraud have a bearing on the effort, challenged in the courts, to make good the default by forcibly merging the promoter with the exchange.